Following a very rough 2022 marred by scandals, collapses and losses, the crypto industry is steadily regaining ground in 2023.
The troubles the industry faced last year had instilled caution and a loss in confidence for many investors; yet, with some assets, such as Bitcoin and Ethereum, bouncing back, and with a fresh cohort of big-name firms filing for spot Bitcoin ETFs, investors are starting to look at the industry again.
Here are a few things experts say investors should know before considering dabbling in the space.
The First Thing To Know: What Not To Invest In
It can be easy to be swayed and convinced by influencers and celebrities pumping various coins on social media. But not all crypto assets are (and fare) the same.
“Crypto outsiders mostly hear about scams and meme coins of dogs and frogs like Dogecoin (DOGE), Shiba Inu (SHIB), and Pep coin (PEPE). Those tokens are excessively volatile and more likely subject to pump-and-dump schemes and market manipulation,” said Thomas Hogan, economist at American Institute for Economic Research. “You could make a bundle, but you’re more likely to lose your shirt. That kind of speculation is more like gambling than investing.”
As such, Hogan said serious investors should look at major tokens they can hold — or “HODL — for the longer term. Bitcoin is the oldest and most reliable cryptocurrency.
“As the flagship,” he said, “its gains are likely to reflect growth in the industry as a whole, and it is the least threatened by future regulation since the Securities and Exchange Commission (SEC) has already deemed it not to be a security.”
In addition, he noted that investors also have the option of earning returns by investing their tokens on decentralized financial (DeFi) exchanges such as Aave and Uniswap, which are fully transparent and have zero leverage, making them safer than traditional financial intermediaries in many ways.
Crypto Is No Different Than Traditional Investing When It Comes to Potential Losses
“A dirty little secret is the harsh reality that most people lose money when investing in just about anything,” said Brian D. Evans, CEO and founder of Web3 venture studio and advisory firm BDE Ventures. “Crypto is no different. That’s the name of the game when it comes to investing in any asset class, but especially so when it comes to the digital asset space. This is a fairly new technology and industry.”
However, Evans noted that there are things you can do to hedge your bet and make sure you are not caught up in the traditional trap of buying high and selling lower, effectively losing money.
“Since we are in a new industry, there are ways to get involved that the average person would not be able to in traditional markets,” Evans said. “In the traditional markets, the ones that make money have insider access to early deal allocations or are already well-known and mega-rich VCs or angel investors. ‘The rich get richer’ — that’s where that comes from.”
According to him, crypto completely flips that model on its head and democratizes access to virtually anything, as anyone with a smartphone or a computer can do a decentralized token swap and buy whatever they want.
“Further and to my point,” Evans added, “if you are a graphic designer, a computer programmer, a blockchain developer, a marketing person, a video gamer, etc., you can bring your experience and skills to these crypto, NFT and blockchain projects and become what’s called a ‘value-add investor’ — meaning you are going to use your skills and a small amount of your money to get a better deal than just investing pure money.
“This combination of money and sweat equity can earn you oversized rewards in the long run in a newer industry willing to take the chance with someone.”
FOMO Is Public Enemy No. 1
“FOMO — or fear of missing out — is your No. 1 enemy when it comes to investing in the digital asset space,” said Nick Rose Ntertsas, CEO and co-founder of NFT platform Ethernity. “All too often, you hear about people throwing ungodly amounts of money toward a mooning crypto asset that suddenly does an about-face and tanks. That’s not wise investing.
“First things first. When approaching this industry, make a self-assessment of what your individual risk profile is. There are certainly many up-and-coming digital assets that could perform well, but at high risk. So, only invest what you’re willing to lose — no more than that.”
Ntertsas added that this industry is punctuated by innovative technology that can fluctuate wildly to the upside, and this can depend on things ranging from the Bitcoin halving and Ethereum’s move to proof of stake to developments in NFTs.
“But the industry also features assets that go up, then down and never recover,” he said, “a phenomenon that depends on hype cycles favoring experimental technology that may work or which might not be widely adopted and therefore not work.
“So, in short, calm yourself when everyone else is FOMO’ing hard and think, ‘Hey, what’s the most strategic approach to be taken here given my risk profile and what I’m personally willing to lose?’ If starting from that perspective, then you can prepare for long-term investing into the most adopted and widely used parts of the space.”
Stick to One Category — One You Understand
As Neel Somani, founder and CEO of Eclipse, explained,the digital asset space is incredibly expansive and touches upon so many industries, whether it’s finance in the form of DeFi, collectibles in the form of NFTs or FOMO-like assets in the form of meme coins.
“So I would say pick a category that speaks to your personal interests,” Somani said. “And so after having thoroughly researched for yourself whatever asset in whichever category you’d like to invest in, you’re in a good spot already.
“From there, of course, only invest what you’re willing to entirely write off. If, for example, you’re interested in brands and digital communities, then perhaps it might make sense to explore the NFT market.
“But it all comes down to what you find compelling yourself. Don’t spend money in a headlong manner on things that you’re not interested in and know nothing about. Essentially, the key is to find what compels you and [do] so in a way that is appropriate for your personal-investing strategy.”
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